MAHARASHTRA ELECTRICITY REGULATORY COMMISSION

Transcription

1 Before the MAHARASHTRA ELECTRICITY REGULATORY COMMISSION World Trade Centre, Centre No.1, 13th Floor, Cuffe Parade, Mumbai Tel / 65/ 69 Fax Website: Case No. 134 of 2012 In the matter of Petition filed by Maharashtra State Electricity Distribution Company Limited (MSEDCL) for approval of Multi Year Tariff Business Plan for the second Control Period from FY to FY Shri. V. P. Raja, Chairman Shri. Vijay L. Sonavane, Member Maharashtra State Electricity Distribution Company Limited...Petitioner Date: 26 August, 2013 ORDER Maharashtra State Electricity Distribution Company Limited (MSEDCL) submitted a Petition for approval of the Multi Year Tariff (MYT) Business Plan for its distribution business for the second Control Period from FY to FY The Commission, in exercise of the powers vested in it under Section 61 and Section 62 of the Electricity Act, 2003 (EA 2003) and all other powers enabling it in this behalf, approves the MYT Business Plan for MSEDCL for the second Control Period from FY to FY after considering all the submissions made by MSEDCL, all the objections and suggestions received from the public, issues raised during the public hearing and all other relevant materials at hand.

2 Table of Contents 1. BACKGROUND AND BRIEF HISTORY Background Evolution of regulatory regime in Maharashtra for Tariff determination MSEDCL s Petition for approval of MYT Business Plan Organisation of the Order OBJECTIONS RECEIVED, MSEDCL S RESPONSE AND COMMISSION S RULING Power purchase Power supply to distribution franchisee Average cost of supply Tariff related objections Load shedding Z-factor charge Open access and grant of another licence within MSEDCL area Consumer services Arrears FAC Theft of electricity Sales projections Business Plan Petition Public notice and hearing MYT framework Demand side management Demand supply projections Un-metered agricultural consumers Segregation of wires and supply business Capital expenditure Provision for bad debt Incentive/ penalty for TOD metering ARR MERC, Mumbai Page 2 of 226

3 2.24. Material Management Tariff applicability for different consumer categories Exemption from electricity duty Power factor incentive Subsidy Distribution loss ASC and RLC refund Trajectory of performance parameters Wheeling charge and cross subsidy surcharge O&M expenses, Other expenses and Legal expenses SALIENT FEATURES OF THE PETITION Applicability of Business Plan Order for FY to FY Premise for the MYT Business Plan Petition Overview of MSEDCL s business Summary of the MYT Business Plan Petition Key assumptions made by MSEDCL BUSINESS PLAN COMPONENTS Organisation structure Human resource development plan Environmental policy and corporate social responsibility (CSR) initiatives plan Market issues and challenges Risk analysis and risk mitigation plan Capital investment plan Demand side management plan PROJECTION OF ARR COMPONENTS UNDER MYT BUSINESS PLAN Background Energy sales Segregation of wires and retail supply business Power purchase Transmission charges Separate category for polluting industries based on RE Tariff MERC, Mumbai Page 3 of 226

4 5.7. Distribution loss and energy balance O&M expenses Capital expenditure and capitalisation Depreciation Interest on long term loans Interest on working capital, interest on consumer s security deposit and other finance charges Provision for bad debts Incentive and discounts Other expenses RLC refund Contribution to contingency reserves Return on equity Income tax Non-Tariff income Income from wheeling charges Income from cross subsidy surcharge and open access charges Income from trading of surplus power Wires availability Supply availability Summary of ARR for FY to FY DIRECTIONS FOR FILING MYT PETITION OVER THE CONTROL PERIOD Appendix Appendix MERC, Mumbai Page 4 of 226

5 List of Abbreviations Table 1: Abbreviations Abbreviation A&G ACOS AFC AMI AMR APDRP APR ARR ASC AT&C ATE BEE BIS BPL BU CAGR CAIDI CAIFI CCEA CEA CERC CFL CGPL CGRF CGS COD Commission/ MERC COSIA CPP CSR CSS CT CUF DCL DF DMS DNA DPC Expansion Administration and General Average Cost of Supply Annual Fixed Cost Advanced Metering Infrastructure Automatic Meter Reading Accelerated Power Development and Reforms Programme Annual Performance Review Aggregate Revenue Requirement Additional Supply Charge Aggregate Technical and Commercial Appellate Tribunal for Electricity Bureau of Energy Efficiency Bureau of Indian Standards Below Poverty Line Billion Units Compounded Annual Growth Rate Customer Average Interruption Duration Index Customer Average Interruption Frequency Index Cabinet Committee on Economic Affairs Central Electricity Authority Central Electricity Regulatory Commission Compact Fluorescent Lamp Coastal Gujarat Power Limited Consumer Grievance Redressal Forum Central Generating Stations Commercial Operation Date Maharashtra Electricity Regulatory Commission Chamber of Small Industries Association Captive Power Plant Corporate Social Responsibility Cross Subsidy Surcharge Current Transformer Capacity Utilisation Factor Distribution Collection Loss Distribution Franchisee Distribution Management System Daily News Analysis Delayed Payment Charges MERC, Mumbai Page 5 of 226

6 Abbreviation Expansion DPDC District Planning and Development Council DPR Detailed Project Report DRUM Distribution Reform Upgrades and Management DSM Demand Side Management DTC Distribution Transformer Centre DTs Distribution Transformers EA 2003/Act Electricity Act, 2003 EHV Extra High Voltage EMI Equated Monthly Instalment ERP Enterprise Resource Planning FAC Fuel Adjustment Cost FBSM Final Balancing and Settlement Mechanism FIAV Federation of Industries Association Vidarbha FSA Fuel Supply Agreement FY Financial Year GDP Gross Domestic Product GFA Gross Fixed Assets GFA Gross Fixed Assets GFSS Gaonthan Feeder Separation Scheme GOI Government Of India GoM Government of Maharashtra Hon ble Honourable HP Horse Power HT High Tension IEX Indian Energy Exchange INR Indian Rupees InSTS Intra-State Transmission System IPP Independent Power Producer IR Infrared IT Information Technology ITES Information Technology Enabled Services ITI Indian Technical Institute KPI Key Performance Indicator kva Kilo-Volt Ampere kvar Kilo-Volt Ampere Reactive kw Kilo Watt kwh Kilo Watt Hour / Unit L&F Light and Fan LED Light Emitting Diode LGB Load Generation Balance LT Low Tension MAT Minimum Alternate Tax MCCIA Maharashtra Chamber of Commerce, Industry and Agriculture MERC, Mumbai Page 6 of 226

7 Abbreviation MEDA MIDC MIS MLA MoEF MoP MPECS MSEB MSEDCL MSETCL MSPC MSPGCL MU MVGS MW MYT NABL NAPAF NAPCC NCE NPCIL NTPC O&M OA PF PFC PFL PGCIL PLF PLR PMS POC PPA PWW R&M R-APDRP RBI RE REC RF RGGVY RGPPL RLC Expansion Maharashtra Energy Development Agency Maharashtra Industrial Development Corporation Management Information System Member of Legislative Assembly Ministry of Environment and Forests Ministry of Power Mula Pravara Electric Cooperative Society Limited Maharashtra State Electricity Board Maharashtra State Electricity Distribution Company Limited Maharashtra State Electricity Transmission Company Limited Maharashtra State Power Committee Maharashtra State Power Generation Company Limited Million Units Maharashtra Veej Grahak Sanghatana Mega Watt Multi Year Tariff National Accreditation Board for Testing and Calibration Laboratories Normative Annual Plant Availability Factor National Action Plan of Climate Change Non Conventional Energy Nuclear Power Corporation of India Limited National Thermal Power Corporation Limited Operation and Maintenance Open Access Power Factor Power Finance Corporation Premises Found Lock Power Grid Corporation of India Limited Plant Load Factor Prime Lending Rate Performance Management System Point Of Connection Power Purchase Agreement Public Water Works Renovation and Modernisation Restructured Accelerated Power Development and Reforms Programme Reserve Bank of India Renewable energy Rural Electrification Corporation Radio Frequency Rajeev Gandhi Grameen Vidyutikaran Yojana Ratnagiri Gas and Power Private Limited Regulatory Liability Charge MERC, Mumbai Page 7 of 226

8 Abbreviation RoE RPO Rs. RTC SAIDI SAIFI SBD SBI SCADA SEZ SOP SSEA SWOT T&D TBIA TML ToD TSP TSSIA TVS UI UMPP VCCI VIA VRS WRLDC WRPC Expansion Return on Equity Renewable Purchase Obligation Indian Rupees Round The Clock System Average Interruption Duration Index System Average Interruption Frequency Index Standard Bidding Documents State Bank of India Supervisory Control and Data Acquisition Special Economic Zone Standards of Performance Small Scale Entrepreneurs Association Strength Weakness Opportunity Threat Transmission and Distribution Thane Belapur Industries Association Tata Motors Limited Time of Day Tribal Sub-Plan Thane Small Scale Industries Association Technical Validation Session Unscheduled Interchange Ultra Mega Power Project Vidarbha Chamber of Commerce and Industry Vidarbha Industries Association Voluntary Retirement Scheme Western Regional Load Dispatch Centre Western Region Power Committee MERC, Mumbai Page 8 of 226

9 1. BACKGROUND AND BRIEF HISTORY 1.1. Background MSEDCL filed a Petition for approval of the MYT Business Plan for the second Control Period from FY to FY , under the provisions of Regulation 7 of the Maharashtra Electricity Regulatory Commission (Multi Year Tariff) Regulations, 2011 (hereinafter referred to as MYT Regulations, 2011) MSEDCL is a company formed under the Government Resolution No. ELA- 1003/P.K.8588/Bhag-2/Urja-5 dated 24 January, 2005, of the Government of Maharashtra (GoM), with effect from 6 June, 2005 according to the provisions Part XIII of the EA The Provisional Transfer Scheme was notified under Section 131(5)(g) of the EA 2003 on 6 June, 2005, which resulted in creation of the following four successor Companies and MSEB Residual Company, from the erstwhile Maharashtra State Electricity Board (MSEB), namely, a) MSEB Holding Company Limited; b) Maharashtra State Power Generation Company Limited (MSPGCL); c) Maharashtra State Electricity Transmission Company Limited (MSETCL); and d) Maharashtra State Electricity Distribution Company Limited (MSEDCL) The function of distribution of electricity in the State of Maharashtra has been vested with MSEDCL Evolution of regulatory regime in Maharashtra for Tariff determination First Control Period for Tariff determination: The Commission had specified the first Control Period in Maharashtra to be a period of three (3) years from FY till FY , through notification of the Maharashtra Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2005 (hereinafter referred to as Tariff Regulations, 2005). However, upon receipt of applications from utilities in Maharashtra, the Commission issued an Order on 20 December, 2005 renotifying the first Control Period from FY till FY Further the Commission had extended the first Control Period by one more year, i.e. up to FY Second Control Period for Tariff determination: On 4 February, 2011, the Commission notified the MYT Regulations, In these Regulations the Commission specified the second Control Period for Tariff determination to be a period of five (5) years starting from FY till FY Exemption from Tariff determination under MYT Regulations, 2011: Upon receipt of a Petition from MSEDCL in Case No. 24 of 2011, the Commission had MERC, Mumbai Page 9 of 226

10 issued an Order on 23 August, 2011 granting exemption to MSEDCL from determination of Tariff under the MYT Regulations, 2011 for a period of two (2) years till 31 March, Amendment of MYT Regulations, 2011: The MYT Regulations, 2011 were amended vide notification of Maharashtra Electricity Regulatory Commission (Multi Year Tariff) (First Amendment) Regulations, 2011 on 21 October, In the said amendment, the Commission specified that the generating companies and licensees who have been exempted for certain periods from determination of Tariff under the MYT Regulations, 2011, shall continue to file annual applications for approval of ARR and Tariff for the period of exemption under the Tariff Regulations, MSEDCL s Petition for approval of MYT Business Plan Submission of Petition: Pursuant to the notification of the MYT Regulations, 2011, the Commission directed MSEDCL to submit its Petition for MYT Business Plan for the second Control Period, latest by 31 March, However, the Commission subsequently issued the Order for exemption of determination of Tariff under the MYT Regulations, 2011 on 23 August, MSEDCL submitted its Petition for MYT Business Plan for the second Control Period on 27 November, 2012 for the period FY till FY excluding the years exempted from the MYT Regulations, Technical Validation Session and submission of amended Petition: The Commission held a Technical Validation Session (TVS) on MSEDCL s Petition on 26 December, The list of individuals, who participated in the first TVS, is provided in Appendix-1(A). The Commission directed MSEDCL to provide additional information and clarifications on the issues raised during the TVS. The Commission directed that while preparing the Business Plan, amongst other things, MSEDCL should take into account the following: a) Submission of details of wires and supply business in a segregated manner in the Petition, since the segregation may be available from the books of accounts. b) Submission of cost of supply computed at various voltage levels, as various factors contributing such cost are known. c) Submission of consumer category wise assumption made while adopting the CAGR for projecting sales in the Petition. d) Submission of division wise loss reduction trajectory as a separate annexure to the Petition. e) Submission of scenario analysis of power purchase plan with respect to fluctuations of coal and gas prices. Accordingly, MSEDCL was directed to submit optimistic, realistic and pessimistic scenarios in the Petition and corresponding projections of ARR. MERC, Mumbai Page 10 of 226

11 Considering the above, MSEDCL submitted revised Petition on 31 January, The Commission conducted the second TVS on 1 February, The list of individuals, who participated in the second TVS, is provided in Appendix-1(B). MSEDCL made a brief presentation of its revised Business Plan before the Commission. Amongst other things, the Commission directed MSEDCL to incorporate projections for refund of RLC in its Business Plan projections The third TVS in this matter was held on 13 February, The list of individuals, who participated in the third TVS, is provided in Appendix-1(C). Subsequent to the directions of the Commission during the TVS, MSEDCL again amended its Petition and submitted the revised Petition to the Commission on 12 March, However, the Commission identified that some infirmity still remained in MSEDCL s Petition which were duly communicated to MSEDCL. MSEDCL again revised the Petition incorporating all required information and submitted the same to the Commission on 21 March, 2013, with the following main prayers: 1. To admit the Business Plan for the Distribution Business of the MSEDCL for the Control Period (FY to FY ) in accordance with Regulation 4.2 and 7.1 of the Maharashtra Electricity Regulatory Commission (Multi Year Tariff) Regulations, 2011; 2. To approve the Business Plan for the Distribution Business of the MSEDCL for the Control Period (FY to FY ) in accordance with the Regulation 4.2 and 7.1 of the MERC (MYT) Regulations, 2011; 3. To approve the principles and methodology proposed by MSEDCL for projection of ARR; 4. To consider the Final Transfer value of the Assets in case the Final Transfer Scheme gets notified during the Control Period and accordingly revise the Business Plan; 5. To allow carrying cost for delayed FAC recovery at the time of next tariff determination proceedings; 6. To approve the deviation from the norms for certain parameters prescribed in MERC (MYT) Regulations 2011, provisions thereof, as sought in this Business Plan during the period FY and FY ; 7. To pass any other order as the Hon ble Commission may deem fit and appropriate under the circumstances of the case and in the interest of justice; 8. To condone any error/omission and to give opportunity to rectify the same; and MERC, Mumbai Page 11 of 226

12 9. To permit MSEDCL to make further submissions, addition and alteration to this Business Plan as may be necessary from time to time Admission of the Petition: The Commission admitted the Petition of MSEDCL on 30 March, In accordance with Section 64 of the EA 2003, MSEDCL was directed to publish the Petition to solicit suggestions and objections from the public. For publishing the notice, an abridged form was prescribed by the Commission to capture essential information about the Petition. In accordance with Regulation 90 of the Maharashtra Electricity Regulatory Commission (Conduct of Business) Regulations, 2004, the Commission also directed MSEDCL to publish the notice in at least two local Marathi and English newspapers, which have wide circulation in its licence area. The Commission also directed MSEDCL to reply expeditiously to all the suggestions and objections received from the public and other stakeholders on its Petition Public Notice: MSEDCL published its Petition in the prescribed abridged form in local newspapers inviting suggestions and objections from the public. It was published in two daily English newspapers, viz. The Times of India and DNA on 8 April, It was also published in two daily Marathi newspapers, viz. Loakmat and Sakal on same day. Copies of MSEDCL s Petition and its executive summary (both in English and Marathi) were made available in the company s offices for inspection/ purchase by members of the public. It was also made available on MSEDCL s website ( in free downloadable format. Copies of the public notice and executive summary of the Petition were also made available on the website of the Commission ( in a downloadable format Public Hearing: A public hearing in the matter was held on 10 May, 2013 at Centrum Hall, 1st Floor, Centre 1, World Trade Centre, Cuffe Parade, Mumbai. The list of objectors, who participated in the hearing, is provided in Appendix-2. The Commission has received written suggestions and objections on MSEDCL s Petition. Some suggestions and objections were also received by the Commission during the public hearing The Commission ensured that the due process contemplated under the law is followed meticulously at every stage to ensure transparency and public participation and to provide adequate opportunities to all the persons concerned who wanted to express their opinion in the matter Organisation of the Order This Order is organised in the following sections: Section 1 of the Order provides the background and brief description of the regulatory process undertaken by the Commission. Section 2 of the Order lists out various suggestions and objections raised by the MERC, Mumbai Page 12 of 226

13 objectors in writing as well as during the public hearing before the Commission. Various suggestions and objections have been summarised, followed by the response of MSEDCL and the rulings of the Commission on each of the issues. Section 3 of the Order summarises the salient features of the Business Plan Petition filed by MSEDCL. Section 4 discusses the Business Plan components, key issues and the Commission s ruling on the same. Section 5 of the Order details the views of the Commission on the projection of ARR components as submitted by MSEDCL for the purpose of Business Plan approval. Section 6 of the Order provides necessary directions of the Commission to MSEDCL. MERC, Mumbai Page 13 of 226

14 2. OBJECTIONS RECEIVED, MSEDCL S RESPONSE AND COMMISSION S RULING 2.1. Power purchase Shri. N. D. Patil representing Maharashtra Rajya Irrigation Federation and Shri. Hemant Kapadia, submitted that MSEDCL is purchasing 70% of the total power requirement from MSPGCL and RGPPL, at very high rates. They submitted that MSEDCL is burdening its consumers by deviating merit order disptach principle. They highlighted that MSEDCL is required to carry out the business on commercial principles, as stipulated under Section 61 of EA Therefore, MSEDCL should purchase electricity from other producers and open market, where the power purchase cost is 20 to 30% less than that for MSPGCL and RGPPL. They also objected that MSEDCL has not proposed any measures to reduce costly power purchases. Shri. R. B. Goenka, Vidarbha Industries Association (VIA), submitted that ample power is available with captive power plants (CPPs) at a cheaper rate as compared to sources like MSPGCL and RGPPL. He submitted that though a number of CPPs are ready to supply power at rates lesser than Rs. 4 per unit, MSEDCL is not purchasing this power and rather implementing load shedding. He added that RGPPL s power purchase rate is in the range from Rs per unit to Rs per unit. Therefore, this source should be avoided completely. Vidarbha Chamber of Commerce and Industry (VCCI) submitted that power purchase costs of MSEDCL are abnormally high for optimistic and pessimistic scenarios. It also submitted that to meet short fall in demand of electricity and to avoid costly power purchase from private sources, the GoM should encourage captive and solar power generation. Shri. Pratap Hogade, Maharashtra Veej Grahak Sanghatana (MVGS), submitted that for FY , power purchase rate for NTPC was Rs per unit compared to Rs per unit for MSPGCL. He submitted that when power is available in market at Rs. 4 per unit, power from Parli and Paras units is being purchased at Rs per unit and Rs per unit respectively. He objected that MSPGCL s inefficiency is responsible for such high cost of power. Also, power purchase rates for wind and solar sources are more than Rs to Rs. 6 per unit. He suggested that the merit order dispatch principle should be followed and RPO should be met through competitively purchased power. Also, planning should be done so as to reduce power purchase cost. Tata Motors Limited, Pune (TML) objected to MSEDCL s proposal of costly power purchase from MSPGCL in the Business Plan Petition. It stated that in the last 12 years the cost of power from MSPGCL has increased by Rs per unit compared MERC, Mumbai Page 14 of 226

15 to an increase of Rs per unit from NTPC. It stated that such increase is unrealistic and unaffordable. Quoting from CEA reports, TML stated that the PLF of MSPGCL stations have declined over the last five years. It further stated that MSPGCL must have control over the quality of fuel that it purchases, lending credence to its objection by quoting similar observation of the Commission in Order in Case No. 6 of It stated that power purchase from MSPGCL should either be stopped or the rate of purchase should be lower than Rs. 3 per unit. It requested the Commission to reject the Business Plan and direct MSEDCL to submit action plan for reducing dependency on costly power purchase. Further, it suggested resubmission of the Business Plan with consideration of required power purchase instead of a surplus power situation and consequent trading at a loss. Shri. Kiran Paturkar of Federation of Industries Association Vidarbha, Thane Belapur Industries Association (TBIA), Small Scale Entrepreneurs Association (SSEA) and Bharatiya Udhami Avam Upbhokta Sangh objected to high cost of power purchase from MSPGCL and RGPPL. They stated that capital costs of MSPGCL s new plants are very high compared to other comparable stations. They urged the Commission to apply merit order principle for power purchased by MSEDCL. They also stated that profit or loss on account for trading surplus energy shall be on account of MSEDCL and the consumers shall not be burdened with the cost of extra power purchased by MSEDCL. TBIA and SSEA also objected to MSEDCL s submission that it has responsibility to supply electricity to agricultural consumers at a low rate. They submitted that according to the Tariff Policy and National Electricity Policy, the utilities are not obligated to supply electricity at cheaper rates to agriculture consumers. TBIA and SSEA also objected to MSEDCL s proposal of procuring solar energy, for which very high rates have been projected.. They raised concerns on MSEDCL s PPA with Lanco Energy Private Limited for supply of power from its Teesta VI hydro electric project, which was approved by the Commission in Order in Case No. 27 of TBIA and SSEA stated that MSEDCL has not projected any power procurement plan as per the terms of supply under the above referred PPA, which envisaged supply of power from FY Thane Small Scale Industries Association (TSSIA) submitted that MSEDCL is either purchasing short term or medium term power which can be a main cause for high power purchase cost. It suggested MSEDCL to purchase power on long term basis only. Shri. T P Mohan submitted that he expected the short term power purchase rate of more than Rs. 3.5 per unit considering the rates discovered at Power Exchange. Hence, MSEDCL should reduce its costly power procurement to an average rate of Rs per unit. He submitted that this would reduce MSEDCL s power procurement cost by at least Rs. 288 crore per annum. Urja Prabhodhan Kendra submitted that MSEDCL should enter into long term MERC, Mumbai Page 15 of 226

16 power purchase contract with other generators who may be able to offer power at competitive rates. It enquired about efforts made by MSEDCL in this direction. It also asked to provide actual power purchase from MSPGCL against the contracted as per PPA. Prayas Energy, Pune, objected that MSPGCL is still the largest source of power purchase for MSEDCL and hence its cost affects overall cost of supply. Power from central sector is most economical due to high PLF and low variable cost. Prayas submitted a comparison between MSEDCL s forecast for power purchase from MSPGCL and MSPGCL s estimated generation for FY to FY It objected that projections made by MSEDCL were based on various assumptions which did not match with MSPGCL s projections for the same period. Prayas submitted a capacity addition plan for MSPGCL, central sector and private sector till FY It objected that if proposed capacity comes online, MSEDCL will have high cost surplus power and selling surplus power in market might not recover the entire cost. Backing down will also impose costs and finally consumers will have to bear higher Tariff. On other side, if proposed capacity does not come online, consumers will have to bear load shedding as well as high cost of medium term power purchase to offset demand supply gap. Prayas submitted that a preliminary analysis of MSEDCL s surplus projections using a chronological generation optimisation tool called Plexos has indicated that a large chunk of the surplus claimed by MSEDCL is available during off-peak period of a day and offseason. Prayas objected that MSEDCL s inefficiency of power purchase planning is the single most contributor for increase in Tariff. Prayas also objected that in spite of having access to all the relevant data, the Commission has never undertaken any independent planning exercise and has relied on utility s submissions alone. Shri. Ravindra Chavan, MLA, objected that power purchase cost has increased by 17% in last 5 years. Higher power purchase cost of MSEDCL is major reason for its higher Tariff. He also objected that there is no calculation and explanation for projections of power purchase cost getting doubled in future years. So, he enquired about efforts taken by MSEDCL to reduce power purchase cost. He added that MSEDCL should make efforts for long term plan to procure power from cheaper sources. During the public hearing, Shri. George John submitted that the ARR of MSEDCL can be reduced by reducing the power purchase expense. Smt. Poornima Mepani submitted that the high rate of purchase from RGPPL needs to be probed further. She questioned the rationale of purchasing costly power thus benefitting the private power producers at the cost of consumers. She further opposed MSEDCL s plans to sell surplus power at average cost thus making consumers pay for the loss incurred on purchase of costly power. MERC, Mumbai Page 16 of 226

17 Shri. N. Ponrathnam submitted that MSEDCL has given excuses in its Petition to consider power procurement function as an un-controllable factor. He added that it is not an un-controllable factor. He also submitted that the fuel price is the only parameter considered as an un-controllable cost under Section 62(4) of the EA Hence, considering parameter other than fuel cost as un-controllable is a violation of the Section 62(4) of the EA Maharashtra Chamber of Commerce, Industry and Agriculture (MCCIA) asked MSEDCL to provide explanation on how MSEDCL would achieve 123,756 MU of power purchase for FY Shri. M.G. Varade and Shri. A.R. Bapat submitted that MSPGCL s share of power purchase is barely 40% out of the total power purchase of 115 BU in FY The power purchased from MSPGCL is 11% costlier than the average cost of power purchase. They stated that MSEDCL purchases 5.3 BU power at Rs per unit from RGPPL and 8.6 BU power at Rs per unit from NCE sources. Thus, it is seen that 10% of power is bought at a rate 37% higher than the average power purchase rate of Rs per unit. The end consumer bears the burden of this costly power. The same is the case in FY They suggested that MSPGCL must work on cost reduction and the Commission may direct MSPGCL to do so. They further added that as per the Business Plan, MSEDCL will have 17 BU to 23 BU surplus energy available for sale and it would buy 18 BU at substantially higher cost. As per the previous 2 year s trend, it is found that trading rate of power has been about Rs. 4 per unit for most of the period. Hence, trading of surplus power purchased at high price does not make any economic sense. Shri. Pramod Pande and Shri. Pradeep Bajad submitted that the power plant owned by Indiabulls is yet to be commissioned. Hence, they requested an explanation on whether the rates as indicated for power purchase would remain constant or would increase in future. During the public hearing, Shri. Satish Shah submitted data of average rate of power traded on the IEX for FY and FY and stated that it is possible to procure power at Rs per unit from the power exchanges. He further asked the reason for MSEDCL procuring power at Rs. 4 from costly power sources. MSEDCL s reply MSEDCL submitted that it has three primary sources of firm power, viz. MSPGCL, central generating stations and IPPs. In addition to the above sources, MSEDCL buys power from RGGPL, power trading companies, Power Exchanges and other sources such as non-conventional energy (NCE) sources, including co-generation, wind power and surplus power from captive plants. MSEDCL submitted that NCE power purchase is mandatory in order to meet the renewable purchase obligation (RPO) stipulated by the Commission. MSEDCL further submitted that the entire NCE power purchase is at regulated Tariffs duly approved by the Commission. MERC, Mumbai Page 17 of 226

18 MSEDCL submitted that the power from RGPPL is also purchased at regulated Tariffs approved by CERC. In the recent years due to low availability of gas, the rate of power purchase from RGPPL has marginally gone up which is approved by CERC. MSEDCL further stated that the power from MSPGCL is being purchased after due approval of the Commission. The Commission has been approving the Tariffs for MSPGCL plants after conducting due regulatory proceedings. Therefore, MSEDCL added that it would not like to offer any comments on Tariffs of MSPGCL plants. As regards suggestion that power purchase rate for MSPGCL source should be lower than Rs. 3 per unit, MSEDCL submitted a summary of fixed charges and variable charges for MSPGCL s power stations for FY as approved by the Commission in the Order dated 21 June, 2012 in Case No. 6 of 2012 as shown in the table below. Table 2: Power purchase rates for MSPGCL stations submitted by MSEDCL for FY Name of MSPGCL power station Charges approved by the Commission for FY in the Order in Case No. 6 of 2012 (Rs. per unit) Fixed charges Variable charges Total charges Bhusawal Chandrapur Khaperkheda Koradi Nasik Parli Uran Paras Unit Parli Unit Paras Unit Parli Unit Khaperkheda Unit Bhusawal Unit Bhusawal Unit MSEDCL submitted that almost all MSPGCL stations had total cost more than Rs. 3 per unit for FY So it would be unreasonable and irrational to say that Tariff of MSPGCL plants should be lower than Rs. 3 per unit during the second Control Period. Considering the recent fuel price hike, inflation, prices will be certainly higher than the levels of FY MSEDCL submitted that it would be difficult to arrange 10,000 MW long term power from open market in short span as suggested by some consumers. In short term markets, due to daily fluctuations of market, there is no assurance of power for longer duration. MSEDCL further submitted that that as per the terms and conditions of PPA, even if MSEDCL stops buying power from MSPGCL or MERC, Mumbai Page 18 of 226

19 RGPPL, it will have to pay the capacity/ fixed charges. So it would always be uneconomical to buy power from market surpassing MSPGCL or RGPPL. It also submitted that it has already tied up all the available capacity from NTPC. It has been trying to get all the possible capacity from upcoming projects of NTPC and necessary formalities for seeking such power have been completed. Thus, MSEDCL is not averse to getting economical power from available resources. MSEDCL further submitted that out of total power purchase; almost 95% of total power procurement is done at regulated Tariffs as approved by the Commission or CERC. The balance power required on RTC basis or for specific period is being purchased through power exchanges or through competitive bidding on transparent e-tendering basis. However, MSEDCL has not projected any short term or medium term power purchase from traders for the second Control Period. MSEDCL has projected the power purchase expenses based on the regulated Tariffs as approved by the competent regulatory authority. In the context of objection that power purchase is not an un-controllable factor, MSEDCL submitted that power availability is a function of various un-controllable external factors such as availability of fuel/ water, seasonal variations, economic policies of the GoM, agriculture, industrial and other developments in the State, etc. It also submitted that certain factors like hydrology, rains, natural calamities, forced shut down, fuel scarcity, lack of water availability to power plants due to less rainfall which affects the generation, are beyond the control of MSEDCL or MSPGCL. The commissioning of project can get delayed due to various reasons such as land acquisition, lack of fuel supply, clearance from the Ministry of Environment and Forests (MoEF), local agitation, etc. MSEDCL also submitted that variation in the power purchase cost is linked to fuel price and market rate and is not controllable by distribution utility as they are not in the business of generation of power. In regard to dependency on costly power, MSEDCL submitted that it has signed the necessary long term PPAs with various generators. If due to above mentioned reasons, the estimated power availability become erratic, the power procurement plan may become redundant. Then MSEDCL will have to go for additional power purchase or expensive short term power purchase. However, it may not be allowed by the Commission as there is provision of the MYT Regulations, 2011 for change in power procurement only once. MSEDCL also submitted that power procurement function is not a normal commercial function wherein within a short span of time necessary power can be contracted. Therefore, planning for such long term requirement need to be done well in advance. MSEDCL also submitted that it has been trying its best to ensure availability of cheaper power. However, due to current market conditions and other external un-controllable factors such as coal price fluctuations, change in coal pricing methodology, which is beyond the control of MSEDCL, the prices seem to be on higher side. MERC, Mumbai Page 19 of 226

20 MSEDCL further submitted that the Commission had directed it to start competitive bidding process in line with Standard Bidding Documents (SBD) notified by the Ministry of Power (MoP). Accordingly, MSEDCL has floated tenders for long term power procurement. MSEDCL further submitted that all long term PPAs have been approved by the Commission after conducting all the necessary regulatory proceedings. In the context of merit order despatch, MSEDCL submitted that during the time of surplus availability, principle of merit order despatch would be applied and costly power would be dispatched last depending on the contract terms and conditions. In regard to objection on power purchase cost from RE sources, MSEDCL submitted that it has already filed a Petition vide Case No. 17 of 2013 for determination of passing on the cost of renewable energy purchase to the industries responsible for pollution and climate change in accordance with the Section 61, 62, 66, 86 and 181 of the EA MSEDCL submitted that this issue may be agitated before the Commission in the said Petition. As regards surplus power, MSEDCL submitted that it has contracted long term power from various IPPs after due approval of the Commission. Depending on the then prevailing power supply situation and terms of PPA such as take or pay, MSEDCL will purchase the power and sell the surplus power. MSEDCL has assumed that it will sell the surplus power in open market at an average power purchase cost. It will deduct the income from such trading from ARR thereby having a possible reduction in Tariffs. MSEDCL further submitted that it has considered the sale of surplus energy at average power purchase cost keeping in view that it will recover the cost it has incurred for purchasing such power. MSEDCL further submitted that considering the recent trends in open market, it would be difficult to assess the market rates for FY and FY at this juncture. Also, by assuming average power purchase rate for selling surplus power, MSEDCL has ensured the cost recovery. If then prevailing market rates are higher than average power purchase rate, MSEDCL will certainly sell the surplus power at market rates only which will certainly benefit the consumers by way of lowering the ARR. In regard to objection that considering any parameter other than fuel cost as uncontrollable is a violation to the Section 62(4) of the EA 2003, MSEDCL submitted that the query raised by the consumer representative falls under the purview of the Commission. It is part of the MYT Regulations, 2011 and this issue cannot be agitated under the current Petition. MSEDCL added that Regulations and directives by the Commission related to the matter are binding on it. Commission s ruling The Commission has scrutinised the power purchase cost submitted by MSEDCL MERC, Mumbai Page 20 of 226

21 and has verified the availability of power from the existing and proposed sources. Availability from new sources has been considered after detailed analysis of realistic dates of commissioning of the projects. Power availability from MSPGCL also has been accepted based on trend of actual generation of MSPGCL. The Commission s analysis for power purchase of MSEDCL has been discussed in the section 5.4 of this Order Power supply to distribution franchisee Shri. Ravi Khilnani submitted that MSEDCL is selling power to the distribution franchisees at a lower rate than the rate at which it procures power. This has resulted in losses for MSEDCL which are being borne by the consumers. He further submitted that the Business Plan does not specify the profit/ loss of MSEDCL on account of supply of power to distribution franchisees. He added that MSEDCL is also required to specify the penalty, if any, charged to distribution franchisee for late payment of fees. MSEDCL s reply MSEDCL replied that it has appointed various distribution franchisees at Nagpur, Aurangabad, Jalgaon and Bhiwandi. It also added that selection of such distribution franchisees is based on tendering process and power is supplied to all distribution franchisees based on terms and conditions of tenders/ bids. Commission s ruling The cost at which the power is purchased by the distribution franchisee from MSEDCL is in accordance with the agreement between the distribution franchisee and MSEDCL. The distribution franchisee is selected through a competitive bidding process based on maximum quoted price for the input power to be supplied by MSEDCL. The entity bidding for the DF area has quoted a price, which is same or higher than the benchmark rate. The minimum benchmark price in the bid/tender document is decided by the distribution licensee based on the prevailing average billing rate, AT&C losses, etc. In addition to this, the distribution franchisee also incurs capital expenditure and operating expenditure to ensure smooth functioning in the franchised area. Therefore, the DF power purchase price is evolved through a competitive bidding process. Further, the price is quoted by the bidder considering the cost/expense which would be incurred by the DF such as operating costs, margin of the bidder, etc. Therefore, the Commission does not see any reason to interfere in the DF arrangements entered into by MSEDCL Average cost of supply Shri. Hemant Kapadia submitted that MSEDCL s average cost of supply (ACOS) is highest as compared to that for other distribution licensees/ States in the country. He MERC, Mumbai Page 21 of 226

22 objected that it is because of purchase of costly power and non adotpion of merit order dispatch principle by MSEDCL. MSEDCL s high cost of supply is leading to an additional financial burden on consumers with frequent increase in Tariff. Shri. R. B. Goenka, VIA, also submitted the ACOS for wire and supply business projected by MSEDCL are unrealistic and very high compared to other States in India. Shri. Pratap Hogade, MVGS, submitted that the Commission vide Order in Case No. 19 of 2012 has approved the ACOS as Rs per unit for FY However, for FY to FY , MSEDCL has projected ACOS as Rs. 6.29, Rs and Rs per unit. He objected that ACOS at Rs per unit for FY is higher than all other States. Also, MSEDCL s per unit Tariff is higher by Rs. 2 to 3 compared to other States. Therefore, MSEDCL s proposal for such a high cost of supply is against the objectives of the EA 2003 such as competition, efficiency and interest of consumers, etc. It is also against the provisions of Tariff Policy. He requested the Commission not to approve MSEDCL s cost of supply. He also submitted that the Commission should enquire so as to why MSEDCL is not able to achieve turn around for its business for past many years. Shri. T P Mohan submitted that MSEDCL has shown 600 MU as surplus power after meeting all its load requirements for FY However, it has not shown estimated revenue from sale of such surplus power. Also, it is not clear what impact of such sale would be on ACOS for FY Tata Motors Limited, Pune (TML) objected to MSEDCL s Petition for approval of Business Plan on the grounds of incorrect projection of ACOS for FY Based on its submission on sales and power purchase projections it computed that MSEDCL s ACOS in FY shall be Rs per unit instead of Rs per unit. Shri. Kiran Paturkar of Federation of Industries Association Vidarbha (FIAV), TBIA, SSEA and Bharatiya Udhami Avam Upbhokta Sangh objected to MSEDCL s projection of ACOS in the second Control period stating that those are unreasonably high. They stated that industrial consumers are subjected to steep Tariff hike every year whereas other consumers are not made to bear the brunt of exorbitant increase in ACOS of MSEDCL to the similar extent. They stated that any further increase will force the industrial units to opt for open access or become sick. They urged the Commission to implement the cost of supply approach for determination of Tariff. Smt. Poornima Mepani enquired the reason for average cost of power supply in optimistic scenario to be higher than that in the realistic scenario. MSEDCL s reply MERC, Mumbai Page 22 of 226

23 As regards objection by TML, MSEDCL submitted that TML has calculated the ACOS considering zero power purchase from RGPPL and less generation from MSPGCL at an unrealistic cost of Rs. 3 per unit. MSEDCL submitted that even in previous Tariff Order for FY , the Commission has approved Rs per unit as average power purchase cost from MSPGCL. It also submitted that it is not clear how TML can take a rate of Rs. 3 per unit from MSPGCL. MSEDCL submitted that TML further assumed no payment is made to RGPPL since no power is taken from RGPPL. MSEDCL added that as per the terms and conditions of PPA, even if it doesn t buy power from RGPPL, it will have to pay the capacity/ fixed charges. So assuming zero payment to RGPPL is not only erroneous but also ignorant on parts of TML. Therefore, MSEDCL categorically rejected the ACOS calculated by TML and submitted that the ACOS calculated by it is correct. MSEDCL submitted that it has projected the ARR and ACOS considering various assumptions for estimation and expected situation in future. It submitted that it has clearly spelt all the assumptions in the Petition and accordingly projected the ARR. It further submitted that the decision of the Commission on road map for cross subsidy reduction will also have impact on future Tariffs. MSEDCL further submitted that it has assumed certain portion of the power purchased will be surplus. It has assumed that it will sell the surplus power in open market at an average power purchase rate and deduct the income from such power trading from ARR, thereby having a possible reduction in Tariffs. MSEDCL also submitted that it has given the scenario analysis only for power purchase. In optimistic scenario, it has considered an optimistic view and projected higher power availability. It added that considering higher power quantum, the resultant power purchase cost in absolute terms also gets increased. However, there is a slight decrease in the power purchase cost per unit in the optimistic scenario. MSEDCL also submitted that since other ARR items such as O&M costs, depreciation, interest and return on equity, etc. and sales remain the same, the ARR in optimistic scenario gets increased. Consequently other items such as provisions for bad debts also get increased, resulting in ARR being higher in optimistic scenario. Commission s ruling One of the major reasons for the rise in ACOS is the increase in power purchase costs. In the present Order, the Commission has undertaken detailed analysis for MSEDCL s proposed power purchase plan and cost. The Commission s views and analysis on the same is provided in section 5.4 of the Order Tariff related objections Shri. Hemant Kapadia submitted that the Tariff for industries is higher in Maharahstra compared to other States. He objected that the main reasons behind it MERC, Mumbai Page 23 of 226

24 are costly power purchase and inefficiency of MSEDCL. He added that to avoid imbalance and to maintain uniform tax structure in all the States, the Central Government is trying to adopt uniform tax structure policies all over the country. Similarly, uniform Tariff rates are required to be maintained for overall development of industrial sector in the country. Shri. Hemant Kapadia also submitted that since the last 3 to 4 years, the Commission had directed MSEDCL for providing voltage based Tariff proposal. However, MSEDCL has deliberately avoided complying with this directive. He requested the Commission to issue direction to MSEDCL once again in this matter. TSSIA submitted that the Business Plan has indicated ACOS of Rs per unit to Rs.7 per unit which mean that the actual Tariff will be too high. It will kill competitiveness of the industries. It added that such a high Tariff is not acceptable. TSSIA requested the Commission not to increase the current Tariff for next 3 years. Mill Owners Association submitted a comparative chart for industrial Tariff across various States. It submitted that industries of Maharashtra have to compete with industries of other States. But, industries of Maharashtra are at a great disadvantage because of high industrial Tariff. It may lead to migration of industries to other States. Chamber of Small Industry Association submitted that currently, the ACOS is approximately Rs.5.50 per unit which is estimated to reach about Rs.7 per unit in the second Control Period. This means that the projected cost of supply will be approximately 27% higher than the present ACOS. It stated that the Tariff will not be less than Rs per unit for industries. This will make the industries in Maharashtra uncompetitive; therefore, it is essential to reject MSEDCL s proposal for approval of ARR. Shri. R. B. Goenka, VIA, submitted that as per MSEDCL, future un-controllable events may have an adverse financial impact on its business. He objected based on the past experience that MSEDCL is interested in multiple Tariff revisions in single year instead of Multi Year Tariff. He submitted that MSEDCL may come again and again to the Commission for revision in Tariff during the MYT period. Urja Prabhodhan Kendra submitted that MSEDCL has reduced its distribution loss from 29.5% to 16.03%. It has resulted in monthly revenue increase from Rs. 1,100 crore to Rs. 3,000 crore during the last 3 years. Also, collection efficiency is increased to 97.3%. It enquired that how much Tariff reduction is resulted due such achievements. Vidarbha Chamber of Commerce and Industry submitted that if MSEDCL s proposal is approved, MSEDCL will be at liberty to increase Tariff by 17% to 22% every year. It will adversely affect agricultural and industrial growth of Maharashtra. MERC, Mumbai Page 24 of 226